The FSA has written to the CEOs of 24 product provider and advisory firms, setting out its concerns that firms may be looking to ‘work around’ the adviser charging rules by soliciting or providing payments or benefits.
The regulator has stressed that one of the principal aims of the Retail Distribution Review (RDR) is to allow consumers to have confidence that the advice they receive is in their best interests and that advisers are not simply recommending providers which pay the highest commission.
However, it has become aware of moves in the market which could undermine the RDR adviser charging provisions and also unfairly disadvantage those advisers who are treating their customers fairly and diligently preparing for the upcoming changes.
The FSA says it is concerned that certain firms may be looking to ‘work around’ the adviser charging rules by soliciting or providing payments/benefits. This might mean that advisers continue to provide ‘biased’ advice to consumers (when recommending a product provider) and also make some firms’ adviser charges look lower than others simply because of the deals and arrangements they have in place with providers. Money from these arrangements would effectively cross-subsidise the cost of advice and could cause firms to recommend certain providers and products over others.
The City watchdog explained that cross-subsidising the cost of advice could lead to a situation where Firm A is charging less for its advice than Firm B because it has a deal in place with a product provider. Firm B’s charge for advice reflects all the costs it incurs, whereas Firm A’s charge for advice does not. As a result, customers could end up picking the cheaper option without realising they may be receiving biased advice.
The FSA said it will be challenging firms who are pursuing these deals and arrangements and will take “robust action” where it finds evidence that they are circumventing the rules.